Nine
reasons for getting a tax notice
The Income Tax Department has
launched a drive to ensure greater tax compliance. In recent months, thousands
of taxpayers have been served notices after discrepancies were noted in their
tax returns or their TDS details.
This sudden rise in the number of
tax notices is not because people have stopped paying tax or filing their
returns. It's just that the tax authorities now have an integrated database on
taxpayers and can track almost all financial transactions of an individual.
The 10-digit alphanumeric PAN,
which has been made mandatory for most money transactions, allows the tax
department to peek into your financial life.
The PAN not only tells the tax
department how much you have earned, but also how you have been spending and
investing that money. Besides, the Central Board of Direct Taxes has a
computer-aided scrutiny system (CASS), which flags any discrepancy in the tax
return filed. Here are some common reasons for the taxpayers getting notices.
1. Not mentioning PAN or quoting incorrect PAN
The PAN is now mandatory for
highvalue transactions. If you do not submit it while making an investment or
taking up a job, your income will be subjected to a higher TDS of 20 per cent,
instead of 10 per cent.
If the PAN is incorrect, you
could even be slapped with a penalty of up to Rs 10,000. The bigger problem of
an incorrect PAN is that the TDS will not be credited to your account. This
often results in an additional tax demand. What's more, the tax refund can be
credited to another account if you submit the wrong PAN.
2. Not checking Form 26AS before filing
The Form 26AS has details of the
tax paid by an individual during a financial year. You can easily access your
Form 26AS online. Some banks also provide this facility to their Net banking
customers. Before you file your return, check whether your Form 26AS has
correctly credited the tax deducted on your behalf.
If your bank, bond issuer or
employer has deducted TDS, make sure it is mentioned in your Form 26AS. Also,
check whether all the investments with TDS have been duly mentioned in the tax
return. Any mismatch will lead to a notice from the department.
3. Mismatch in income and expenses & investments
Financial services firms,
registration authorities and merchant establishments are supposed to report
certain high-value transactions to the CBDT. The CASS matches this information
with the returns filed by the taxpayer and promptly issue a notice if there is
a mismatch.
The Income Tax Department gets
all infor mation about high-value financial transactions on the basis of the
PAN that you submit to your bank, share broker, mutual fund house and registrar
of properties. If the income you have declared is not matching your investments
and spending, you can get a tax notice.
4. Not filing returns if income is above Rs 2 lakh
If your gross taxable income
before deduction under any section is above Rs 2 lakh, it is mandatory for you
to file your return. If you don't file it, you can be slapped with a penalty of
up to 300 per cent of the outstanding tax. Even if there is no tax liability,
the return has to be filed if the income before deductions (tax savings,
education loan, home loan, etc) is above the basic tax exemption.
5. Not filing return by the due date
You can file your income tax
return till the end of the assessment year if there is no tax due. For example,
the tax return for 2012-13 can be filed till 31 March 2014 without incurring
any interest or penalty if all the taxes have been paid. However, if some tax
remains unpaid, filing your return after the deadline could lead to a penalty
of Rs 5,000. Also, you are not allowed to carry forward your losses if you file
after the due date, nor can you revise the tax return.
6. Not declaring the previous employer's income
This is a common problem and was
easily missed by the tax authorities in the past. However, now that the tax
database has been integrated, don't think you can ignore your income from a
previous job. If your employer deducted TDS on your income, the details would
be in your Form 26AS, and the CASS will immediately flag this discrepancy. You
can be levied a penalty of up to 300 per cent of the tax evaded.
7. Avoiding TDS by misusing Forms 15G and 15H
If the interest income on bank
deposits exceeds Rs 10,000 a year, the bank deducts TDS. You can avoid TDS by
submitting Form 15G or 15H if you are not liable to tax. However, if you are
trying to avoid TDS, you can get a notice from the tax department. Submitting a
wrong declaration can invite a penalty of Rs 10,000. Splitting the deposits in
different banks or bank branches to avoid TDS will not help as the PAN is the
same.
8. Not declaring interest on bank deposits and post office savings
The interest earned on bonds,
fixed deposits, recurring deposits and savings accounts is taxable and should
be mentioned in your tax return. Up to Rs 10,000 earned on your savings bank
account is tax-free, but it still needs to be included in your total income for
the year. Likewise, the PPF interest income is tax-free, but should be included
in the exempt income.
The following deductions are
available on bank interest: interest on savings account is exempt up to Rs
10,000 for the assessment year 2013-14. The interest from post office savings
is exempt up to Rs 3,500, or Rs 7,000 for joint accounts.
9. Not responding to intimation/notice from the tax department
Don't ignore the messages and
notices from the tax department. If you do not respond, the interest and
penalty keeps on increasing in case of any pending tax liability and the Income
Tax Department will take a final decision that may not be beneficial for you.
